Blockchain Implementation in NBFC’s

01 February, 2018      Financial & Technical

Blockchain or distributed ledger technology has several attractive features to offer in the financial sector that can revolutionize the operational aspects of NBFC’s.

Blockchain or distributed ledger technology has several attractive features to offer in the financial sector that can revolutionize the operational aspects of NBFC’s. Some of them are -

1. Smart Contract
2. Corporate risk profiling
3. Payments

Smart Contract –

Smart contract is a self-executing code, triggered when the parameters of the contract signed between the lender and the receiver is matched or completed. The parameters and the conditions are stored or recorded in the nodes of the block shared in the network. Where physical contract limits us with hefty amount of paper work, verification process and even weeks and months of follow-up, there smart contract could play a vital role by reducing the time period and complexity of the work through simple contracts which can be even partially executed depending upon the conditions and parameters of the parties.  Still larger portion of the loan syndicate are either in the verge of transforming to digital platforms or stuck with the old traditional methods. Whereas, the beauty of smart contract lies in the immutable nature and security features of the network that makes both the parties rest in ease with the knowledge that their data will always remain private and confidential.

Client Risk Profiling-

The Distributed Ledger Technology or the so called Blockchain, has a number of potential use cases within the client risk profiling along with wealth and asset management. Blockchains are highly flexible and once implemented, they can be used to Smoothen up the client onboarding process, streamline management of portfolios, speeding up the trade settlements and easing the compliance burden, associated with anti-money laundering (AML). The results will be the elimination of redundant functions, remarkable reduction in operational expenses and increased opportunities to enhance the client experience. While Blockchain technology is changing the pace of the market but still it’s unlikely to replace the current systems, it may be used to reconcile information or to enable new infrastructure for new markets and products.

 Payments –

 Traditional Payment system takes 2-3 business days to complete the transactions, whereas cryptocurrencies developed using the blockchain will take 2 – 5 seconds to complete the transaction. Bitcoins is one of the widely used cryptocurrency but there are several issues and risks associated with it that prevents the financial institutions from using it for payment. Henceforth, the Banks are collaborating to form a private blockchain network to launch their own cryptocurrency. These currencies are immutable and irreversible, hence, payments and transfers can be initiated even before the actual asset changes ownership. Implementations of this project will result in time and cost savings along with reduction in back office delays and overall improve in customer service.